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Daily Market Commentary

Chief economic cheerleader Larry Kudlow has pronounced yesterday's Existing home sale report as very strong and a sign that the housing market is on its way higher.  We respectively disagree, as we wrote on the blog yesterday (here: http://blackblog.rcc.rccnet.ca/index.php/2008/07/24/us-home-prices-further-to-fall-despite-gse-bailout/ ).

While prices may not be dropping anymore, the inventory of homes is still massive, and foreclosures are still on the rise, all but ensuring that inventories stay high.  The market took it as a negative as well, taking down names like Centex, Pulte and DR Horton.  The S&P 500 Homebuilding Index dropped 15% after this news. 

This morning, we'll get the same report for new home sales, which promises to be much lower.  We'll remind everyone that Kudlow has been bullish since.... well, forever, really. 

Bonds are holding onto yesterday's big gains, having rallied on the back of terrible equity performance and the aforementioned home sales numbers.  Credit finally stumbled a bit, taking a step back yesterday.  In Canada, the highest quality rallied, as Provincials and Agencies were better bid.  Canada Housing Bonds, which we have spoken of as being great buys before (we're also long) were being bought up aggressively, as realization that they aren't Freddie or Fannie.  We have, and always have had, explicit government guarantees on CanMors.  At 40 basis points over Canada, they are still cheap, having rallied 20 bps from their lows.

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